A summary of the Obama Tax Compromise has been released containing several items of interest that have not made many of the headlines:
- Although Democratic opposition to the Estate Tax provisions of a $5,000,000.00 exemption per person has been trumpeted, a close reading reveals a married couple has a $10,000,000.00 exemption that can be moved around after the death of one spouse so that any unused portion can be used by the second to die.
- Perhaps more importantly, the proposal adopts the Unified approach to combining lifetime gifts with property passing at death. This approach was abandoned by the 2001 Tax Act. From the released summary, it is not emphatically clear, however the implication could be that whereas lifetime gifts until now had a $1,000,000.00 exemption from tax; under this proposal that could rise to $5,000,000.00 per person leaving tax to be paid upon the person’s death. If this proposal is adopted and if this reading of the summary holds, there will be significant planning regarding “freezing” asset values during lifetime by gifting to avoid taxation at death.
- A lesser revelation is the proposal’s retroactive date for the new estate tax rules being January 1st of this year, 2010. An election can be made to be taxed under the 2010 prevailing system of no estate tax and consequently no step up in basis.
It will be interesting to see how much these “below the radar” provisions survive the Senate and House of Representatives by Monday to say nothing of by the time it gets to the President’s desk.
For more on this or other tax concerns, contact the Illinois tax attorneys at Horowitz & Weinstein.